Differences between the UK and the USA

5.5 Differences between the UK and the USA

• 
  The US still has a structural separation between local and long distance carriers in that incumbent local carriers are not allowed to provide long distance services in the areas where they operate local services, whereas the UK does not.
  
• 
  In the US local calls are not charged either per minute or per call and are subsidised by long distance calls. Long distance carriers have to pay local access subsidies to local carriers. US states and local authorities also raise taxes from telecommunications. These factors result in the long distance tariffs being high and create a much stronger market for bypass services.
  
• 
  The regulation of voice services is technology specific with Internet based services avoiding the heavy regulation placed on the traditional telcos. In contrast the UK and most European countries have technology neutral regulation.
  
• 
  The US mobile market is far behind that of Europe and is not yet reducing fixed network traffic volumes to a significant extent
  
• 
  The large and powerful incumbent local carriers are not major providers of ISP services, whereas BT is a major ISP provider (although not as great as either France Telecom or Deutsche Telekom)
  

The other area of significant difference is the availability of numbers. The US, Canada and Mexico are part of the North American Numbering Plan, which is a fixed length 10-digit numbering system that has a severe shortage of spare numbers. This will constrain the options for allocating E.164 numbers to new IP based services.

The US distinctives of a strong national bypass market and a shortage of E.164 numbers are driving strong interest at present in the development of a public service called ENUM that amongst other things will translate an E.164 number used for the provision of public telephony by a telco into an Internet name for the same use so that a caller can communicate over the Internet and avoid call charges.

5.6 Conclusion

We think that the combination of technology advances towards multi-service solutions and price reductions will drive a process of combination in the retail market. As prices reduce consumers will find it easier to buy everything from one service provider. Figure 32 shows our conclusions for the retail market. The separate market segments of:

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  Circuit switched access line paid by subscription
  
• 
  Internet access paid by subscription
  
• 
  Fixed telephone calls paid according to use at varying rates
  

• 
  Access line paid by subscription but including Internet access
  
• 
  Basic services including email, fixed voice calls and data paid by subscription with some funding by advertising. These services will probably be combined with the access line
  
• 
  Premium services paid separately, probably on a pay-as-you-go basis using electronic payment
  

Figure 32: Changes in retail market segments

These changes will also apply to wholesale services. These trends will tend to squeeze bypass operators out of the market, although some may be able to continue by reselling services or bundling services with non-telecommunications services such as power.

There is likely to be a marketing battle for the provision of these combined basic telephony and access services. We think that size and customer relations will be the dominant factors and that therefore the battle will be fought mainly between the telcos with access lines and the large ISPs. The ISPs will have to obtain their access lines from the telcos either by local loop unbundling or buying and re-badging a wholesale service. If BT’s network access business becomes truly independent from the other BT businesses and if it invests adequately in new technology, then we think that most operators will prefer to re-badge this facility rather than run unbundled loops.

6 Forecasts

Forecasting is difficult and almost certain to be inaccurate. The prevailing view is that it is impossible to look more than a year or two ahead. The following is based on a combination of research, and analysis from underlying trends.

We think that the future of public fixed networks lies in their use for broadband services because broadband services are likely to remain cheaper than mobile on fixed networks for the foreseeable future.

Fixed networks are facing a pervasive wave of change that will eventually lead to all-IP systems. However there are various different parts of the telecommunications systems that are changing at different rates. We therefore look at the different aspects of:

• 
  services
  
• 
  terminal
  
• 
  access
  
• 
  networks
  

separately. We then look at the effect on residential traffic and finally present the overall picture.

6.1 Telephony service provision

We expect that telephony service provision will go through a period of fragmentation as new players enter the market, especially the bypass markets, which are driven by users who want to save costs. Carrier pre-selection will help the bypass market which will grow and then decline as price becomes less of an issue and calls begin to be charged by subscription.

This period of fragmentation will be followed by consolidation as the volume of IP based traffic grows and as call related charges for basic telephony disappear. As we explained at the end of the last section, we expect that the size of the customer base will be a dominant issue and that the main battle in the longer term will be between the direct access telcos and the large ISPs. We cannot predict the outcome but we think that the telcos start with an advantage from having larger customer bases and higher, though falling, revenues.

Figure 33 shows these developments.

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